This invention relates to a method of facilitating the operation of markets for financial instruments such as “SWAPS”. In particular it relates to a system which utilises internet browser-type software to present different interfaces to trading parties who have different rights of access to the system, and also to present different views of the activities of other parties.
Preferably, the invention provides an interconnecting network of internet browser based software applications delivered from a central host to traders at regulated banks to trade as principals, to brokers at regulated brokerages to trade as agents and to credit officers at regulated banks to input counterparty credit limits.
Preferably the system is delivered centrally over a high powered telecommunications network from a central host.
In a preferred form of the invention, there are three user interfaces and the internal workings of the system are designed to support multiple types of users and multiple trading processes. For example a trader at a regulated bank uses an interface to anonymously price disseminate, price discover and trade directly with other regulated banks or to perform the same activities via a regulated broker or brokers, or to perform both activities at the same time. A broker at a regulated brokerage uses a different interface to price disseminate and discover non-anonymously and to enter orders/prices and execute orders on behalf of regulated banks by entering the code name of the bank on whose behalf they are acting. A third non-trading interface is available for credit officers at regulated banks to input counterparty credit limits to enable the system to automatically cross-match and clear credit limits during the trade process. The system is also designed to enable trading to take place without the loading of any credit limits in to the system—it is at the discretion of the regulated banks.
“Permissions Filter”
Market participants in the current voice and manual marketplace regard their price/order information as proprietary in nature. A key problem to solve in any electronic system for OTC derivatives is how to ensure that the correct orders/prices are sent only to the correct parties. According to a preferred feature of the present invention the price dissemination, price discovery, order management and trade management is all conducted via a “permissions filter” central to the system. This operates in the following manner: As orders/prices are entered into the system by regulated banks themselves and by regulated brokers on behalf of regulated banks they are routed to the central servers. The orders/prices are ranked by price and by time of receipt into a display of the available marketplace of orders/prices showing a “touch” bid and offer price and a ranked order book of less competitive and timely bids and offers for each instrument in each maturity. This market view is then re-transmitted to each regulated bank and regulated broker on the system. The re-transmission takes place using a unique “permissions filter” which cross-maps the regulated banks and regulated brokers that the order enterer or order viewer is/is not permissioned to see and be seen by. The system does this for every order/price entered into the system by every system member and then constructs the market view of orders/prices appropriate to each member's permission set. The result is that the market view of available prices/orders in the same instruments and maturities presented to each member bank and broker will be different depending upon the cross-mapping of permission sets. Only two parties with identical permission sets will see the same marketplace. Even then, the permissions are alterable within the set by members themselves who can turn permissioned parties on and off as they interact with the system. This means that even with identical permissions one party may not see what an identical party sees because they have been switched off momentarily by a third party sending in an order/price. As a result the system only shows orders/prices to banks and brokers that are permissioned to see them by the order/price enterer. Thus the proprietary nature of the orders/prices entered into the system is maintained. This process of order/price ranking and filtering via cross-mapped permission sets and re-transmission is tailored to each system member bank and broker and is conducted by the system continuously in real-time.
The trading modules of the user interface allow trading to occur between regulated banks directly, between regulated banks via a regulated broker and between banks and brokers in multiple combinations. Once an available order/price is hit/executed by a trader at a bank or by a broker at a brokerage the appropriate dealing tickets appear electronically on screen to the appropriate counterparties to facilitate the trade to be negotiated and executed. Not only does the system present the appropriate deal tickets to each participant, if a sequence of complex negotiations occurs between the parties, the system also facilitates this and presents at every step of the negotiations the correct information and selectable fields in order to negotiate, finalize terms and execute the transaction.
SWAP SPREAD PRICE DISSEMINATION, DISCOVERY, ORDER AND TRADE MANAGEMENT The trading module also contains a second OTC derivatives instrument market known as “swap spreads”. The swap spread market is a derivative of the interest rate swap market and a single spread instrument is always composed of two interest rate swaps in differing maturities (see Appendix I). The system uniquely solves the problems of electronic price dissemination, price discovery, order management, trade management and the automatic matching of spreads and the automatic linkage to the underlying interest rate swaps market. If two interest rate swap orders/prices are entered into the system in differing maturities by banks or brokers, under certain circumstances the system will auto-generate a single resulting spread order/price and put it into the swaps spread marketplace. If a spread price/order is entered into the system by a bank or broker, under certain circumstances the system will auto-generate a single or pair of swap orders/prices and put them into the swap marketplace. The system continuously chains swap orders/prices and spread orders/prices throughout all maturities in both the swap marketplace and the spread marketplace automatically in order to assist swap and spread traders and brokers and to generate as much market depth as possible in both markets. When a price/order is hit/executed in either the swap or spread markets the system will automatically present the correct trading tickets to all the banks and brokers in the chain in order to manage and execute all the trades.